Federal Deposit
Insurance Corporation

July 13, 2004

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Re: Definition of "Deposit"; Stored Value Cards

Dear Mr. Feldman

Navy Federal Credit Union provides the following comments in response to the Federal Deposit Insurance Corporation (FDIC) proposal to clarify the meaning of "deposit" as that term relates to funds underlying stored value cards at insured depository institutions. Navy Federal is the nation's largest natural person credit union with over $20 billion in assets and 2.4 million members. Although Navy Federal is not subject to FDIC's deposit insurance rules, Navy Federal is subject to the National Credit Union Administration's (NCUA) share insurance coverage rules. Since NCUA has traditionally had a policy of maintaining parity with the FDIC's rules,¹ we believe responding to FDIC's proposal is appropriate.

The FDIC proposes to define which types of stored value cards would be considered "deposits," and subject to the federal deposit insurance rules. According to the proposal, the FDIC believes such clarification is necessary because many new types of stored value card products have been developed since the FDIC first opined on this issue in 1996. The proposal would define the funds underlying certain of types stored value cards as "deposits" under three different scenarios based on who issues the cards and has access to the underlying funds.

Navy Federal encourages FDIC to withdraw this proposal. We believe that stored value cards are irrelevant to the discussion of federal deposit insurance coverage. It is our understanding that the FDIC's rules at 12 CFR Part 330 implementing the Federal Deposit Insurance Act hinge on the term "deposit account." While the rules do not appear to define the specific term "deposit account," Section 330.3 states "The insurance coverage provided by the Act and this part is based upon the ownership rights and capacities in which deposit accounts are maintained at insured depository institutions (emphasis added)." This general principle substantiates the traditional belief that deposit insurance coverage has typically been applied to accounts, notwithstanding any access devices that may be associated with those accounts. We do not believe that this traditional basis for applying deposit insurance coverage rules should change. Therefore, if a financial institution maintains an account reflecting funds owned by a particular accountholder, we believe the account should be subject to federal deposit insurance rules, regardless of whether the accountholder can access the funds in the account with a particular access device.

In addition, Navy Federal continues to believe that proposed rules addressing stored value cards are premature. In 1996, the Federal Reserve Board issued a proposal to define "stored value cards" and subject those cards to Regulation E.² The Board, however, choose not to finalize its proposal for fear it would stifle development of the stored value card industry. We believe the FDIC's proposal, if finalized, could also similarly stifle development of stored value products. Merchants and financial institutions continue to release new types of stored value products each year. A regulation defining certain types of stored value cards as "deposits" may hinder such creative product development and limit stored value options for consumers. Further, we are not aware of safety and soundness issues or significant consumer abuses associated with these products. Therefore, we encourage FDIC to withdraw its proposal.

Navy Federal appreciates the opportunity to comment on FDIC's proposed changes to the definition of "deposit" as it relates to stored value cards.

Sincerely,

Thomas W. Steele
Acting President/CEO
Navy Federal Credit Union
P.O. Box 3000
Merrifield, VA  22119

TWS/slb

cc: National Credit Union Administration

¹ Federal Register, Vol. 69, No. 38, p. 8799
² Federal Register, Vol. 61, No. 86, p. 19696